The Crash

This summer’s heat is nothing compared to the storm that’s coming

Illustration By robert armstrong

“If we make it through December, everything’s gonna be all right, I know,” Merle Haggard first sang back in 1973. “It’s the coldest time of winter, and I shiver when I see the falling snow.”

The subject of the country crooner’s song has been laid off at the factory and worries that daddy’s little girl won’t understand if there’s no Christmas this year. It may not snow that often in Sacramento, but brothers and sisters, Christmas is coming, fronted by an economic storm the likes of which few of us have ever seen.

I say “few of us” because there are some old-timers out there who lived through the 1930s and remember the Great Depression. Black Tuesday, the 1929 stock-market crash, presaged a decade of economic contraction that threw 25 percent of the workforce out of their jobs. The soup kitchen wasn’t something to snicker at while passing through a dicey part of town. It was what’s for dinner.

Haggard, 71, was raised in Bakersfield during the Depression by Dust Bowl refugee parents; references to migrant workers, drifters and petty criminals, all of whom dream of a better life, permeate his early work. The hard-luck tales resonated with a working-class audience that had survived similar hardships to see a better day—in no small part due to progressive policies ushered in by President Franklin Roosevelt’s New Deal, which enjoyed widespread popular support into the 1970s.

So how did we get from there to here, where the New Deal has been rendered irrelevant by the return of laissez-faire capitalism? In a name, Ronald Reagan. As governor of California, Reagan pardoned Haggard for his past criminal convictions in 1972. Upon assuming the presidency of the United States in 1981, he initiated the destruction of the New Deal and Lyndon Johnson’s Great Society that has continued unabated through each successive presidential administration, Republican and Democratic alike.

The result has been three decades of declining middle-class wages, an increasing concentration of wealth in the hands of a tiny minority and a series of economic catastrophes ranging from the Savings and Loan crisis in the 1980s to the bursting of the dot-com bubble in 2001 to the present disaster brought on by the deflating U.S. housing bubble, which threatens to plunge the global economy into a new depression.

The current crisis has been exacerbated by complex structured financial instruments known as collateral debt obligations, or CDOs. These devices permit bankers to trade blocks of mortgages as if they were shares of stock. When debtors began to default on loans en masse, investors were caught holding worthless paper—representing a total loss as high as $30 trillion worldwide, according to some estimates.

New Deal legislation known as the Glass-Steagall Act once restricted the securitization of mortgages, since similar activities in the 1920s led to the failure of thousands of banks during the Great Depression. Such safeguards were once taken for granted, but not by baby boomers. Glass-Steagall was repealed in 1999 by President Bill Clinton.

Add in the $9 trillion national debt, skyrocketing fuel prices, and the precipitous decline in the value of the dollar, and you’ve got the ingredients for a perfect storm. Its outer edges are just hitting the River City now. According to the Sacramento Regional Research Institute’s June economic survey, the region lost 6,500 jobs during the past 12 months and “posted negative job growth for the first time in 15 years due to slowdowns in nearly every major sector.”

Can we make it through December? Some folks over at The Sacramento Bee are wondering if they’re gonna make it through next week. The Federal Reserve is pumping hundreds of billions of freshly minted dollars into the investment-banking system in a last-ditch attempt to stave off a stock-market collapse before the election. I predict the effort will fail and that the market, as it did in 1929 and 1987, will crash sometime in October.

Those of us who support progressive economic policies take no solace from the coming crash, other than a rather empty-feeling we-told-you-so. Haggard, for his part, was no “Okie from Muskogee,” and penned “Rainbow Stew,” an ode to the hobo delicacy, in honor of Reagan’s inauguration in 1981. He saw what was coming. Who knows? Come Christmas, maybe we’ll all be eating rainbow stew. No doubt daddy’s little girl ain’t gonna like it much.